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Global Market Guide: Hong Kong, China

Filled with beautiful skyscrapers and homes with penthouse views of the city, Hong Kong hosts highly coveted properties in the heart of the city. Regularly ranked as the most expensive housing market in the world, top home prices in Hong Kong continue to rise due to increasing demand. In this month’s Global Market Guide, we take an inside look at the high end of the real estate in Hong Kong to learn more about what buyer’s value most.

MARKET TRANSACTIONS

Dual agency, when both the buyer and seller are represented by the same agent, is the norm in Hong Kong. In the limited cases in which separate buyer and seller representation occurs it is usually because of a co-op deal (when they buyer and seller are each represented by different brokers) Like many countries, yet unlike the U.S., Hong Kong does not have an MLS directory, which makes exclusive or sole agent listings very uncommon, constituting less than 5% of all listings. Most sellers prefer to work with more than one broker at a time to get their property exposure through multiple sources.

CURRENT HOUSING MARKET

Within Hong Kong’s residential resale market, transaction volumes are at a historic low, which is being caused by three primary factors — 1) high transaction costs, 2) strict mortgage policies and 3) low yield returns. Right now, high-end buyers are mostly seeking primary residences or ultra-luxury investment properties, often considered collectibles or antiques.

ATTRACTING LUXURY BUYERS

The address matters. Hong Kong buyers typically look for homes in traditional affluent neighborhoods in order to attain social status. The popular high-end neighborhoods are usually tranquil with private lots and sea views. Alternatively, large homes within a 30-minute drive to downtown and homes that have long-term capital growth are also highly appealing.

In the heart of the city, over 90% of luxury properties are condominiums in high-rise buildings. Most of these buyers renovate to suit their individual tastes after moving in, so they are not particularly concerned with the amenities in the unit when purchasing.

NEW DEVELOPMENTS

In the past two years, the transaction volume of new developments has increased and at certain times contributes about half of the total residential transaction volume. Developers provide transaction fee rebates and more lenient mortgage options (higher loan-to-value ratio) for buyers than for residential sellers.

LUXURY BUYER PROFILE

Luxury buyers in Hong Kong are mostly independent entrepreneurs or have family-owned businesses. A small percentage of luxury buyers are working professionals and in those cases, are typically over 50 years old. Hong Kong residents constitute at least 70% of the luxury buyers in the market and 90% of the non-resident buyers come from China.

CURRENT POLITICAL CLIMATE

The political climate in Hong Kong generally does not affect the property market directly unless it is a major event, such as the Sino-British Joint Declaration in 1984, which directly affected the economy. Although there was a major political event, “The Umbrella Movement” in 2014, the economy and residential property market were not affected by it.

INCREASED HOME PRICES

The major effect of the rising prices in the Hong Kong real estate market is low level transaction volume. Low yield return (2% or less) and record-breaking prices have eliminated the demand from value investors and the remaining buyers are looking for a safe haven for their money or a new residence.

5-YEAR PREDICTION

With home prices in Hong Kong at an historic high and a low level of transactions combined with low interest rates (2.0% to 2.5%), low unemployment rate (3.1%) and below average new housing supply, our experts predict modest growth over the next 12 months.

Although home prices have been increasing rapidly the past 16 months, there is still uncertainty about the market. The current housing cycle, which began in 2004, is five times higher than it was at the end of the last cycle, and could very well come to a peak in near future. Official data shows 98,000 units will be ready for sale and occupancy in the next four years.

Despite the increase in home prices in Hong Kong, demand from luxury buyers has yet to decline. With little sign of prices declining, luxury buyers remain selective seeking out properties in affluent neighborhoods and prioritizing secure financial investments over short term living arrangements.

Special thanks to our member Asia Pacific Properties for providing their insights about the luxury real estate market in Hong Kong.